Consumer Response to Cigarette Excise Tax Changes

We use a rich dataset of weekly cigarette sales to examine how consumers adapt their behavior before and after excise tax increases — whether by stockpiling or substituting between quality tiers of a product. We fnd that stockpiling primarily occurs for low-tier cigarettes. In the short term, consumers shift from high-tier to low-tier cigarettes, presumably to maintain current consumption. However, in the long term, tax increases are associated with substitution toward high-tier cigarettes. In the long term, average levels of tar, nicotine, and carbon monoxide consumed per pack rises, as consumers substitute across tiers and brands, suggesting a long term negative impact on health outcomes.